USCA1 Opinion
United States Court of Appeals
For the First Circuit
____________________
No. 97-2289
MICHAEL D. BANK, THOMAS M. DUSEL, AND ROBERT J. M. O'HARE,
JR., in their Capacity as Trustees of the 400 Wyman Street
Trust,
Plaintiffs, Appellees,
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION
Defendant, Appellant.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
____________________
Before
Selya, Boudin and Lynch,
Circuit Judges.
____________________
Kenneth E. Werner, with whom J. Charles Mokriski,
Jonathan I. Handler and Day, Berry & Howard were on brief, for
appellant International Business Machines Corporation.
David W. Rosenberg, with whom Saul A. Schapiro,
Thomas Bhisitkul and Rosenberg & Schapiro, P.C. were on brief,
for appellees Michael D. Bank, Thomas M. Dusel and Robert J. M.
O'Hare, Jr.
____________________
May 29, 1998
____________________
LYNCH, Circuit Judge. In this case, we must construe
provisions of a complex partnership agreement between two
sophisticated parties to a real estate development deal. We
must determine whether the partnership agreement entitles one
of those parties, the 400 Wyman Street Trust (Wyman), through
its trustees, to call on its partner, International Business
Machines Corporation (IBM), to provide a multi-million dollar
capital contribution in this circumstance, involving the later
refinancing of the original permanent loan. That refinancing
involves the purchase of the original mortgage note, which
provided the initial financing for the project, the development
of an office building in Waltham, Massachusetts.
In the district court, IBM moved for summary
judgment, arguing that the agreement was unambiguous and
imposed no such obligation on it. Wyman opposed IBM's motion,
arguing that the agreement was ambiguous and that, under
Massachusetts law, Wyman must therefore be permitted to submit
parol evidence in the form of the testimony of its negotiating
attorneys. The district court determined that, quite apart
from any parol evidence, the agreement was unambiguous in its
imposition of such a capital contribution obligation on IBM,
and entered summary judgment sua sponte for Wyman. We agree
that the agreement unambiguously supports Wyman's position and
that resort to parol evidence is therefore unnecessary. We
also find no error in the district court's decision to enter
summary judgment sua sponte for Wyman. We affirm.
I.
In October 1986, IBM and Wyman entered into a
partnership to develop and operate an office building at 400
Wyman Street, Waltham, Massachusetts. Wyman contributed a
parcel of land, valued by the parties at $19.3 million,
received a majority interest of 51% in the partnership and was
named the managing partner. For its part, IBM agreed to a
long-term lease commitment, and also contributed $1 million at
the outset of the agreement. IBM received a minority interest
of 49% in the partnership. IBM also agreed to make additional
capital contributions, if such contributions were "required for
any purpose," so long as the two parties' "adjusted capital
contributions" remained out of balance; i.e., those
contributions did not reflect the 51:49 ratio of the parties'
ownership shares in the partnership.
The partnership planned to finance the project
through a $75 million non-recourse mortgage note (the
"permanent loan"), and obtained such a loan from Citicorp Real
Estate, Inc., which subsequently sold it to a consortium of
foreign banks for which Citicorp served as the agent. The
partnership had difficulty generating sufficient revenue to
make its loan payments. In 1995, the partnership entered
negotiations with the lenders to refinance the permanent loan,
which at that time had an outstanding principal balance of
approximately $72 million. The lenders did not agree to a
refinancing, but offered to sell the note outright for about
$54 million.
Wyman believed the offer was a good solution to the
partnership's problems, but IBM disagreed, regarding the price
as too high. To prevent the offer from expiring, Wyman caused
its corporate affiliate, Wyman Loan Corp., to purchase the
note, and then proposed that the note be resold to the
partnership at cost. IBM opposed the plan. Wyman sought
arbitration under the agreement, which requires that disputes
concerning a "refinancing" proposal be arbitrated. IBM opposed
arbitration on the ground that Wyman had not yet proposed a
refinancing plan, but had only proposed that the partnership
purchase the initial mortgage note, and that the issue was
therefore not yet arbitrable.
Wyman brought suit to compel arbitration under the
agreement. The district court, agreeing with Wyman that the
issue was arbitrable, granted Wyman's motion to compel
arbitration. See Bank v. International Bus. Mach. Corp. (Bank
I), 915 F. Supp. 491, 498-99 (D. Mass. 1996). This court
reversed, holding that Wyman's motion to compel arbitration was
premature because it had not submitted a concrete refinancing
plan, but rather had proposed simply that the partnership
acquire the initial mortgage note outright. This court
regarded Wyman's proposal at that time as a proposal to acquire
an interest in real property, which is not arbitrable under the
agreement, rather than a refinancing proposal, which is.
See Bank v. International Bus. Mach. Corp. (Bank II), 99 F.3d
46, 49 (1st Cir. 1996).
The parties could not agree to a more concrete
refinancing plan in part because they could not agree on the
extent of IBM's obligation to provide additional capital
contributions. Wyman thought the agreement provided it with
the ability to call on IBM to provide a capital contribution
sufficient to bring the parties' "adjusted capital
contributions" into balance, which was approximately $17.5
million, before it was obligated to seek third-party financing
for the partnership. IBM did not dispute that it had some
obligation under the agreement to provide additional capital,
if such capital were required to complete the refinancing
successfully, but thought that it was only required to
contribute capital if sufficient funds could not be obtained at
commercially reasonable rates from third-party lenders.
Although the parties could not resolve this issue on
their own, they agreed to a settlement which capped IBM's
potential liability and posed one question for resolution by
the court. The settlement agreement permitted IBM to exit the
partnership upon a capital contribution of $6 million. This
was done. The agreement also provided that Wyman would bring
a declaratory judgment action to establish which partner's
interpretation of the agreement was correct. Under the
settlement agreement, if Wyman won its suit, IBM would pay it
an additional lump sum of $4 million. If IBM won, it would be
excused from any further liability under the partnership
agreement.
Wyman filed the contemplated declaratory judgment
action. Before any discovery had taken place, IBM moved for
summary judgment in its favor, arguing that the terms of the
contract were unambiguous and did not require it to make the
$17.5 million capital contribution. Wyman opposed IBM's motion
for summary judgment on the ground that the contract did impose
such an obligation and that summary judgment was inappropriate
at this stage because it wished to present parol evidence that
it contended would clarify potential ambiguities in the
contract. See Den Norske Bank AS v. First Nat'l Bank of
Boston, 75 F.3d 49, 52 (1st Cir. 1996) (under Massachusetts
law, "extrinsic evidence is admissible to assist the factfinder
in ascertaining the intent of the parties as imperfectly
expressed in ambiguous contract language"). Wyman attached
affidavits to its opposition to summary judgment from the
attorneys who had represented it during the partnership
negotiations. Because we do not consider this evidence, we do
not describe the contents of the affidavits.
The district court decided against IBM's motion for
summary judgment. It construed the contract's language as
unambiguously supporting Wyman's position. The district court
did not detect any ambiguity in the terms of the contract
requiring resort to parol evidence, as Wyman had argued.
Although Wyman had not moved for summary judgment, the district
court granted summary judgment sua sponte for Wyman, reasoning
that IBM's own motion for summary judgment had given it a fair
opportunity to put forward its own interpretation of the
contract's terms.
IBM appeals, again arguing that the contract is
unambiguous and supports its position. In the alternative, IBM
argues that the district court's sua sponte grant of summary
judgment was improper and that a remand for further fact-
finding is appropriate if we should think the contract
ambiguous. We reject both contentions.
II.
Our review of the district court's grant of summary
judgment is de novo. Sears, Roebuck & Co. v. Goldstone &
Sudalter, P.C., 128 F.3d 10, 15 (1st Cir. 1997). Further,
"[u]nder Massachusetts law, interpretation of a contract is
ordinarily a question of law for the court," Coll v. PB
Diagnostic Systems, Inc., 50 F.3d 1115, 1122 (1st Cir. 1995)
(internal quotation marks and citations omitted) and, as a
question of law, is subject to plenary review. "Should the
court find the contract language unambiguous, we interpret it
according to its plain terms." Den Norske Bank, 75 F.3d at 52.
If those plain terms unambiguously favor either side, summary
judgment is appropriate. On the other hand, if the contract's
terms are ambiguous, "contract meaning normally becomes a
matter for the factfinder," id., and summary judgment is
appropriate only if "the extrinsic evidence presented about the
parties' intended meaning is so one-sided that no reasonable
person could decide to the contrary." Id. at 53 (citations,
internal quotation marks and alterations omitted).
The difference in these standards is a result of the
parol evidence rule, which Massachusetts follows. In
Massachusetts, "[t]he parol evidence rule precludes evidence of
earlier or contemporaneous discussions that would modify the
provisions of a later integrated agreement which the proponent
of the agreement seeks to enforce." New England Fin.
Resources, Inc. v. Coulouras, 566 N.E.2d 1136, 1139 (Mass. App.
Ct. 1991). Both parties concede that the partnership agreement
by its own terms is a fully integrated document and that it
represents the whole understanding of the parties, and so, if
unambiguous, cannot be modified by evidence of earlier or
contemporaneous discussions. The question of whether an
ambiguity exists in such an agreement is also "generally a
matter of law for the court." Wyner v. North Am. Specialty
Ins. Co., 78 F.3d 752, 754 (1st Cir. 1996). "An ambiguity is
not created simply because a controversy exists between the
parties, each favoring an interpretation contrary to the
other's." Id. at 756 (internal quotation marks and citation
omitted). Rather, a contract is only ambiguous "where an
agreement's terms are inconsistent on their face or where the
phraseology can support reasonable differences of opinion as to
the meaning of the words employed and obligations undertaken."
Coll, 50 F.3d at 1122 (internal quotation marks, alterations
and citation omitted).
With these principles in mind, we turn to the
question posed in this case. Under the settlement agreement,
the question posed to the court, well within our Article III
jurisdiction, is this:
In any proposal for refinancing the
Partnership debt involving the purchase of
the outstanding first mortgage note, does
the Partnership Agreement require, unless
otherwise requested by the Managing
Partner, that IBM first make a capital
contribution in an amount necessary to
achieve Adjusted Capital Contribution
Balance (approximately $17.5 million) and,
then, that the Partnership finances the
balance needed to refinance the debt in
accordance with the terms of the
Partnership Agreement?
To answer this question, we turn to the terms of the
Partnership Agreement, which sets forth a complex financial
relationship between the parties.
According to 3.1 of the Agreement, Wyman initially
held a 51% interest in the partnership, while IBM was given a
49% interest. Pursuant to 3.2, Wyman's initial capital
contribution was real property, valued by the Agreement at
$19.3 million, while IBM's initial capital contribution was
merely $1 million in cash. Thus, each partner's initial
capital contribution did not reflect that partner's respective
ownership interest in the partnership on a pro rata basis.
The Agreement imposes different obligations on the
parties that are contingent on whether "Adjusted Capital
Contribution Balance" has been achieved. According to
1.1(4), "'Adjusted Capital Contribution Balance' shall mean the
initial point at which the Adjusted Capital Contributions of
Wyman and IBM are in a 51:49 ratio," i.e. the point at which
the two partners' adjusted capital contributions reflect each
partner's ownership interest in the partnership in that ratio.
Section 1.1(3) defines "Adjusted Capital
Contribution" as follows:
"Adjusted Capital Contribution" shall mean
the initial Capital Contribution of a
Partner, increased by any subsequent
Capital Contributions and reduced by any
Capital Proceeds distributed to such
Partner under Section 4A.2, Second and
Fourth.
The Agreement's definition of "Adjusted Capital Contribution"
makes clear that there are two primary ways in which Adjusted
Capital Contribution Balance might be achieved. If the project
generates sufficient revenue to allow for the distribution of
capital proceeds to the partners, 4A.2 sets forth the way in
which such proceeds are to be distributed:
First, to Wyman, until Adjusted
Capital Contribution Balance has been
achieved, an amount equal to 6.5% per year
of the difference from time to time
between Wyman's Adjusted Capital
Contribution and IBM's Adjusted Capital
Contribution . . . .
Second, to Wyman, until Adjusted
Capital Contribution Balance.
Third, to pay the unpaid outstanding
balances if any, of loans made by any
Partner . . . to the Partnership . . .
plus any accrued but unpaid interest
thereon.
Fourth, the balance in accordance
with the Distributive Shares of the
Partners . . . .
Thus, one method by which Adjusted Capital Contribution Balance
could be achieved, contingent on the project generating
sufficient revenue, would be for the partnership to repay Wyman
for its initial capital contribution of $19.3 million from the
capital proceeds of the project until a 51:49 ratio was met.
That would require, assuming no additional capital
contributions from either party, the partnership to distribute
approximately $18.3 million to Wyman under 4A.2 Second. That
$18.3 million distribution would be, of course, over and above
any distributions required to compensate Wyman at the rate of
6.5% annually for the partnership's use of Wyman's surplus
capital contribution pursuant to 4A.2 First. Only after such
distributions have been made (and any loans have been repaid)
would the partnership begin making payments of any capital
proceeds to the partners in accordance with each partner's
ownership interest.
The Agreement also contemplates another method by
which Adjusted Capital Contribution Balance might be achieved.
According to 3.2(c), governing "Additional Capital
Contributions by IBM":
If the Partnership requires additional
funds for any purpose . . . at any time
before Adjusted Capital Contribution
Balance occurs, IBM upon notice from the
Managing Partner shall promptly contribute
the amount required (but not more than
such amount as is required to effect
Adjusted Capital Contribution Balance) and
Wyman shall not be required to contribute
any funds until Adjusted Capital
Contribution Balance occurs. . . .
Thus, if the partnership "require[d] additional funds for any
purpose," Wyman could call on its partner, IBM, to make
additional capital contributions up to the amount required to
achieve balance. This required IBM potentially to make
additional capital contributions of up to approximately $17.5
million. There is no mention in 3.2(c) of any duty first to
seek money from outside lenders.
Thus, the agreement contemplated that the initial
imbalance of the two partners' capital contributions could be
addressed either by a payment from the partnership to Wyman
totaling approximately $18.3 million (above the 6.5% annual
charge on the use of Wyman's excess capital) if capital
proceeds were forthcoming, or by additional capital
contributions from IBM potentially totaling approximately $17.5
million, if additional capital contributions were required, or
by some combination of the two.
Once Adjusted Capital Contribution Balance occurs,
however, the parties' obligations to make capital contributions
change. Pursuant to 3.3.1, entitled "need for funds":
After Adjusted Capital Contribution
Balance is achieved, if the Partnership
requires additional funds for any purpose
. . . at any time in excess of the amounts
available under the Construction Loan or
Permanent Loan, the Managing Partner
shall first attempt to arrange for the
borrowing of such funds from independent
lenders, or from a Partner or its
Affiliate or Related Person, on such terms
as are Approved by the Partners. . . . If
the Partnership does not agree to borrow
such funds, the Partners shall make
additional Capital Contributions from time
to time in accordance with the provisions
herein and in the same percentages as
their then respective aggregate
Distributive Shares and in such amounts
which are sufficient to enable the
Partnership to carry out the purposes of
this Agreement. . . .
Thus, after Adjusted Capital Contribution Balance is achieved,
3.3.1 imposes a duty on the partnership first to seek funds
by borrowing from third-party lenders. If such borrowing is
insufficient to supply funds that "the Partnership requires for
any purpose," the partnership may then call on the partners to
make additional capital contributions "in the same percentages
as their then respective aggregate Distributive Shares . . . ."
Thus, if balance had been achieved and additional funds were
needed above what was available from lenders, the partnership
could call on Wyman to contribute 51% of the amount required
and IBM to contribute the remaining 49%.
Wyman's interpretation of the Agreement is relatively
straightforward. Under 3.2(c), Wyman is given a right to
make a capital call on IBM, if the partnership "requires
additional funds for any purpose," up to the amount needed to
achieve Adjusted Capital Contribution Balance, i.e.,
approximately $17.5 million. Under 3.2(c), Wyman need make
no additional contributions nor seek outside debt financing.
Because a refinancing of the original loan is a valid
"purpose," this permits Wyman to call on IBM to make such an
additional capital contribution before seeking outside debt
financing so long as the parties' capital contributions remain
out of balance. Under 3.3, it is only after balance is
achieved that Wyman has any obligation first to seek outside
debt financing.
IBM acknowledges its basic obligation to make
additional capital contributions, potentially totaling $17.5
million, under 3.2(c) if the partnership "requires additional
funds for any purpose." IBM also acknowledges that "any
purpose" includes the purpose of refinancing the initial
permanent loan. Finally, IBM also acknowledges that,
generally, Wyman need not seek outside debt financing before it
calls on IBM to make additional capital contributions before
balance occurs under 3.2(c), but only after balance occurs,
in accordance with 3.3. However, IBM argues that a
refinancing of the permanent loan that provided the initial
financing for the project represents an exception to the
general terms of 3.2(c).
IBM notes the longstanding principle of contract
interpretation that "[s]pecific terms are given greater weight
than general language." In re 604 Columbus Ave. Realty Trust,
968 F.2d 1332, 1357 (1st Cir. 1992) (citing Lembo v. Waters,
294 N.E.2d 566, 569 (Mass. App. Ct. 1973)). IBM argues that
contract provisions specifically addressed to the permanent
loan, rather than the general capital contribution provisions
in 3.2(c) and 3.3, should govern. IBM notes that the
cornerstone of the project's initial financing is a $75 million
non-recourse note secured by a mortgage on the office building.
Section 3.9.2 specifies how the partnership would obtain this
loan:
The Partnership shall attempt to secure
financing by a lender or lenders which (a)
provides for a non-participating Permanent
Loan to the Partnership on terms and
conditions Approved by the Partners, in an
amount not less than the greater of (i)
$75,000,000 and (ii) 100% of the then
current estimate of Total Project Costs
(all of which are to be paid or reimbursed
with the proceeds of the Permanent Loan),
and so far in excess of the greater of
such figures as is appropriate in light of
required debt service thereon, other
anticipated Partnership expenses, and
anticipated Partnership income and (b)
provides for the exculpation of the
Partnership and its Partners from all
personal liability for the payment of any
interest on, or principal of, the
Permanent Loan or the performance of any
of the terms and conditions contained in
any mortgage, deed of trust or other
security instruments securing the
Permanent Loan or in any collateral
document except insofar as the Partners
may be required to obligate themselves
personally to provide such funds as may be
required to obtain a Permanent Loan of at
least $75,000,000. . . .
Thus, IBM says, 3.3.2 provides that the partnership's
"Permanent Loan," which was expected to provide the financing
for virtually all the partnership's expenses, should be non-
recourse to the extent possible, and specifically provides that
the loan should not require either partner to personally
indemnify the loan unless and only to the extent necessary to
obtain the loan.
Indeed, the $75 million figure, IBM argues further,
was intended to provide the partnership not only with
sufficient funds to pay for the operation of the project but
also to repay Wyman for its disproportionate capital
contribution. IBM contends that this reliance on debt
financing by both parties represents, from its perspective, the
linchpin of the deal; both parties would provide little equity
financing, and the partnership's major financing would be a
non-recourse loan secured by a mortgage on the office building
itself. To obtain such a loan, IBM further notes, IBM was
required to enter a long-term lease for over half of the office
building, thus satisfying the lender that the office building
would have at the outset an anchor tenant of the stability of
a blue-chip corporation like IBM. This in turn created the
risk for IBM that it would be locked into a unfavorable lease
for office space. IBM finally argues that there is no textual
conflict between 3.9.2 and 3.2(c) because the word
"requires" in 3.2(c) should be interpreted in the refinancing
context as incorporating a duty first to seek outside debt
financing.
The two parties' differing interpretations thus
depend on which provisions of the contract govern IBM's
undisputed obligation to provide capital contributions in any
refinancing of the permanent loan. Wyman argues that the
general capital contribution obligations set forth in 3.2(c)
and 3.3.1 govern. According to those provisions, Wyman is
permitted under 3.2(c) to call on IBM to make additional
capital contributions "[i]f the Partnership requires additional
funds for any purpose" up to the amount needed to achieve
Adjusted Capital Contribution Balance. Section 3.2(c) imposes
no duty first to seek debt financing from independent lenders.
After balance is achieved, 3.3.1 requires Wyman first to
attempt to obtain third-party debt financing before calling on
the partners to make capital contributions that are
proportional to their ownership interests in the partnership.
Again, IBM does not dispute its obligation to provide capital
contributions in a refinancing, but rather argues that the
permanent loan provision, 3.9.2, demonstrates the parties'
intent to rely primarily on debt financing, and that the
provisions of 3.9.2 thus limit IBM's general obligations to
provide additional capital contributions under 3.2(c).
Without more, the contrast between 3.9.2's reliance
on debt financing for the permanent loan and the clear language
of 3.2(c) and 3.3.1 outlining IBM's capital contribution
obligations might create sufficient ambiguity to require going
outside the contract's "four corners" to determine the parties'
true intent concerning IBM's capital contribution obligations
in any refinancing. See Den Norske Bank, 75 F.3d at 52. Such
extrinsic evidence would allow the court to determine whether
the parties intended to make the achievement of Adjusted
Capital Contribution Balance an overriding objective, as Wyman
maintains, or whether any such goal was subordinate to the
partnership's reliance on debt financing, as IBM contends.
However, resort to extrinsic evidence is not
necessary because the contract itself provides an unambiguous
answer to the question of which provision governs the parties'
obligations in a refinancing. Exhibit D of the Agreement lays
out the partnership procedure for undertaking "Major
Decisions." One such decision is any refinancing of the
permanent loan. Exhibit D, C(13) describes the parties'
obligations to each other in any refinancing of the permanent
loan. That provision expressly provides that "the need for
capital contributions shall be determined in accordance with
Section 3.3 of the Agreement." Notably, Exh. D, C(13) does
not refer to 3.9.2, but expressly states that 3.3 governs
the need for capital contributions in the refinancing context.
Section 3.3, in turn, lays out each partner's capital
contribution obligations "[a]fter Adjusted Capital Contribution
Balance [has been] achieved . . . ." Because balance has not
yet been achieved, under 3.3 we must look to 3.2(c) to
determine the parties' obligations. That section, in turn,
provides that IBM has an obligation to provide up to the amount
required to achieve balance (approximately $17.5 million) "[i]f
the Partnership requires additional funds for any purpose
. . . ."
The use of the words "for any purpose" clearly lays
out a very broad obligation to provide additional capital
contributions to the Partnership. We do not agree with IBM's
argument that the word "requires" limits this obligation to
providing additional capital contributions only if financing
cannot be obtained from third-party lenders. Such an
interpretation of "requires" would import the obligation to
seek debt financing contained in 3.3.1, operative only after
balance is achieved, into 3.2(c), operative before balance
is achieved. Section 3.2(c) contains no express obligation to
seek funding first from outside lenders, and this is plainly
not accidental. To interpret 3.2(c) as implicitly containing
such an obligation would contradict the parties' expressed
intent to provide for different capital contribution
obligations depending on whether the parties' adjusted capital
contributions had achieved balance or not.
IBM's proposed interpretation of "requires" in
3.2(c) as incorporating a duty to seek debt financing in the
refinancing context also creates linguistic problems, by
creating a redundancy. Both 3.2(c) and 3.3.1 limit the
parties' obligations to provide additional capital
contributions to circumstances in which the partnership
"requires additional funds for any purpose . . . ." If the
word "requires" already incorporates a duty first to seek debt
financing in any refinancing, it would eliminate the reason for
the express language in 3.3.1 which imposes on the
partnership, after balance is achieved, an obligation first to
seek debt financing before calling on the partners to
contribute additional capital. A contract should be
interpreted as a whole, so that each of its provisions has
operative effect. See Bank One Texas, N.A. v. A.J. Warehouse,
Inc., 968 F.2d 94, 97-98 (1st Cir. 1992); J.A. Sullivan Corp.v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986). IBM
essentially argues that the word "requires" in 3.2(c)
implicitly imposes a duty to seek debt financing identical to
the duty expressly imposed by 3.3.1. Such an interpretation
does not square with the identical use of the word "requires"
in 3.3.1.
IBM notes that Exh. D, C(13) refers expressly to
3.3, but not to 3.2(c). IBM construes this omission to
express an intent to impose the duty to seek third-party debt
financing contained in 3.3 in all refinancing proposals,
regardless of whether Adjusted Capital Contribution Balance had
been achieved. Otherwise, IBM argues, Exh. D., C(13) would
expressly refer to both 3.2(c) and 3.3. The difficulty with
this argument is that it requires us to ignore the text of
3.3, which expressly applies only "[a]fter Adjusted Capital
Contribution Balance [has been] achieved . . . ." Although an
express reference to both 3.2(c) and 3.3 might have been
more artful drafting, the reference to 3.3 alone is
sufficient to lead the reader from 3.3 to 3.2(c). Section
3.3 is applicable only after balance is achieved; 3.2(c)
explains how the partnership can call for capital contributions
before balance is achieved.
IBM's next argument for imposing a duty on the
partnership to seek outside debt financing is based on the
definition of "Permanent Loan," which the Agreement defines as
"such long term financings or refinancings, whether one or
more, which are described in Subsection 3.9.2." Agreement
1.1(50). This definitional provision is too thin a reed on
which to rely, given the statement in Exh. D, C(13),
governing any proposal for refinancing, that "the need for
capital contributions shall be determined in accordance with
Section 3.3 of the Agreement."
Of course, the definitional provision, 1.1(50),
states that the provisions of 3.9.2 generally apply to both
the initial financing and to any refinancing proposal. Yet the
provisions of 3.9.2 are drafted with the initial permanent
loan in mind, and not all of them make sense as applied to a
refinancing. For example, 3.9.2 instructs the parties to
obtain a loan of at least $75 million, but a refinancing,
obtained after some of the principal of the initial loan had
been paid and perhaps on more favorable terms, would likely
involve a loan for a smaller amount (as it did here). IBM does
not argue that 3.9.2 imposes an obligation in any refinancing
proposal to maintain indebtedness of at least $75 million.
Rather it admits that 3.9.2 does not apply "to its full,
literal extent" in the refinancing context, and given that the
provision's terms were apparently drafted with the initial
permanent loan in mind, we are inclined to agree.
Moreover, the question in this case concerns capital
contribution obligations, a topic not directly addressed by
3.9.2. Exh. D, C(13) provides expressly that in any
refinancing the "need for additional capital contributions" is
governed by the general provisions of the Agreement concerning
such contributions, i.e. 3.3 and 3.2(c) (by implicit
reference), not by any allegedly different rules created by
3.9.2. Therefore, whatever relevance the requirements of
3.9.2 have to a refinancing plan in general, it is plain that
3.3, and therefore 3.2(c), govern the parties' obligations
to provide additional capital contributions as part of any
refinancing. Those provisions impose a duty first to seek
outside debt financing only after Adjusted Capital Contribution
Balance is achieved.
IBM's final objection is that an interpretation which
permits the partnership to require an additional capital
contribution of up to $17.5 million in any refinancing would
render the contract irrational. Under Massachusetts law, "a
contract should be construed so as to give it effect as a
rational business instrument." McMahon v. Monarch Life Ins.
Co., 186 N.E.2d 827, 830 (Mass. 1962). IBM poses various
hypothetical scenarios designed to show that allowing Wyman to
trigger a large capital contribution obligation, potentially
totalling $17.5 million, simply by proposing a refinancing plan
renders the deal's reliance on debt financing meaningless.
This, IBM contends, could not represent the reasonable
expectations of the parties. See id.
IBM's parade of horribles ignores the important
safeguards against such overreaching which the Agreement itself
incorporates. First, as to the initial financing, 3.9.2
requires the partnership to seek a loan "in an amount not less
than the greater of (i) $75,000,000 and (ii) 100% of the then
current estimate of Total Project Costs . . . ." This
provision thus requires the partnership to seek an initial loan
that is at least large enough to cover all of the partnership's
needs, and in no event less than $75 million. Under 3.9.2,
then, IBM would not be required to make any additional capital
contribution at the time of the initial financing plan unless
the partnership fell short of its borrowing goals.
Second, as to any refinancing plan (in which, as IBM
acknowledges, the requirement to maintain the same level of
indebtedness would not apply), it is true that IBM could be
required to make an additional capital contribution,
potentially totaling $17.5 million, so long as Adjusted Capital
Contribution Balance had not been achieved. Yet this does not
leave IBM without recourse. Under Exh. D, C(13), any
refinancing proposal is a "Major Decision." Although the
Agreement does not give IBM the power to veto a refinancing
proposal, as it does with some other decisions, IBM can demand
arbitration of any refinancing proposal under Article XI of the
Agreement. That provision requires a neutral set of arbiters,
experienced in the Boston real estate market, to consider the
commercial reasonableness of any refinancing proposal. If
Wyman proposed a refinancing plan which was not in the
partnership's best interests but was merely a pretext to force
IBM to make a capital contribution, then IBM could challenge
the refinancing proposal itself before the arbitration panel.
These safeguards would prevent Wyman from abusing its
power as Managing Partner under 3.2(c) to call on IBM to make
additional capital contributions in any refinancing proposal.
They do not, however, limit the partnership's ability to call
on IBM to make additional capital contributions in an otherwise
reasonable refinancing plan. Giving Wyman such authority is
not so commercially irrational that it would cause us to
question our interpretation of these unqualified and
unambiguous provisions requiring IBM to make a capital
contribution as part of a commercially reasonable refinancing
proposal. Wyman may well have decided to agree to a
partnership in which IBM's initial capital contribution was
small only because it had the broad authority under 3.2(c)
to call on IBM to make additional capital contributions that
were appropriate for the partnership's needs. The text of the
Agreement makes clear that this authority was not circumscribed
by a duty to seek outside debt financing first in any
refinancing arrangement. It is not for the courts to upset the
deal that the parties have made.
We therefore conclude, as did the district court,
that the Agreement's text provides an unambiguous answer to the
question the parties have posed in this declaratory judgment
action. In any proposal for refinancing the Partnership debt
involving the purchase of the outstanding first mortgage note,
the Partnership Agreement requires, unless otherwise requested
by the Managing Partner, that IBM first make a capital
contribution in an amount necessary to achieve Adjusted Capital
Contribution Balance (approximately $17.5 million) and, then,
that the Partnership finance the balance needed to refinance
the debt in accordance with the terms of the Partnership
Agreement.
One final issue remains. This case was not resolved
on cross-motions for summary judgment; rather, Wyman opposed
IBM's motion for summary judgment on the ground that the
contract was ambiguous, that discovery was needed to ascertain
the true intent of the parties through resort to parol
evidence, and that summary judgment was therefore premature.
The touchstone in our review of the district court's
decision to grant Wyman summary judgment sua sponte is whether
IBM was afforded appropriate notice and a fair opportunity to
present its arguments. See Berkovitz v. Home Box Office, Inc.,
89 F.3d 24, 29 (1st Cir. 1996). Sua sponte summary judgment
is also appropriate only if the litigation is sufficiently
advanced that both parties have had a reasonable opportunity
to present any material evidence in their favor. See id.
If the district court had ruled for Wyman on the
ground that the agreement was ambiguous and that parol evidence
demonstrated that Wyman's position was correct, we would in all
likelihood agree with IBM. As Wyman had argued that more
discovery was necessary, such a ruling would have presented
serious problems of unfair surprise to IBM, which was entitled
to develop parol evidence of its own if it failed to convince
the court on its purely textual argument and would have had no
opportunity to request additional discovery under Fed. R. Civ.
P. 56(f). But the district court ruled that the agreement was
unambiguous and that it supported Wyman's position. This court
has affirmed the decision of the district court on the same
basis.
IBM's motion for summary judgment in its favor was
premised on a theory that the contract was unambiguous and
supported its position. IBM's own summary judgment motion, in
the circumstances of this case, gave IBM ample opportunity to
explain its understanding of the contract terms and to set
forth its interpretation of the contract's text. As neither
the district court nor this court considered resort to
extrinsic evidence necessary, no further discovery was
warranted. We therefore find no error, given the circumstances
of this case, in the district court's sua sponte grant of
summary judgment.
We make one final observation. Both sides have been
served well by very able counsel. Further, the efforts of
counsel to resolve this matter, or so much of it as they were
able, are to be commended. Through the settlement, in a very
real sense, both sides have won.
The judgment of the district court is affirmed.